Time for Larger Denomination Bills|
February 24, 2014
Jack Lloyd’s comments regarding the reissue of $500 and $1,000 bank notes were spot-on. Especially his suggestion about the introduction of a $200 note. I would go a little further and suggest the new $200 notes should be printed on 32 note sheets with half the notes sporting a portrait of Martin Luther King Jr, and the other half featuring Ronald Reagan. The selection of multiple portraits would insure enough bipartisan support in congress to get the enabling legislation passed.
A few other observations on circulating bank notes:
Most of the reluctance to tinker with the coins and currency of the United States stems from government fear that any change would be an acknowledgment that the US dollar has significantly depreciated. For this reason, we have cash instruments that are essentially unchanged since 1965 though the dollar itself is only worth about a tenth of what it was back then. I suspect the government fears that the elimination of the cent, nickel – and really even the dime -- would be a defacto admission that the dollar has plunged in value. The fear is that the elimination of these denominations, along with the elimination of the dollar bill, could psychologically affect markets in a very negative and inflationary way.
Eventually the government will no longer be able to hold back the obvious, and as the use of higher denomination bills becomes more common, the idea of reintroducing the $500 and $1,000 will get some serious traction. If the government won’t lead the way, you can expect private enterprise to take the lead in this area instead.
The beginning of this scenario may come as early as this spring. Much has been said about the challenges facing the banking industry with the Windows-XP operating system coming off support in April of this year. About 85 percent of the ATMs out there are running XP, and the cost and technical efforts involved to remedy this are quite substantial. For those institutions overhauling their ATMs it would make perfect sense for them to look forward in an effort to reduce future costs. The result may well be ATMs that no longer dispense $20 bills, but instead issue $50 notes.
For the banks it makes a lot of sense, and for consumers it makes sense as well. The inability to “change” a $50 would become little more than a minor operational hurdle for most businesses. Sure, they would need more cash on-hand to make change. But as described above, in depreciated dollars the amount of cash in the till would still be less than it was even 30 years ago at most businesses. Once this trend is firmly in place and the $50 replaces the $20 as the workhorse of commerce, the end of the dollar bill would be almost guaranteed in order to make room for the higher denomination notes in the register drawer.
Anyone who doubts the logic of all this need only take a trip to the local doughnut shop. My favorite place here in Kansas City now returns $6 and a few coins change on a $20 bill with the purchase of a dozen doughnuts. It’s about time we ratchet things up a notch, and begin using larger denomination notes in everyday commerce. It’s simply a matter of common sense. While common sense rarely ever seems to drive change in Washington, I expect it will prevail in the market anyway, albeit a little bit later than necessary.
Bruce Walker is a hobbyist in Kansas City, Mo.
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